Editorial: Defending Detroit pensioners the right call

Jul. 29, 2013

Written by

The Detroit Free Press Editorial Board

It’s not often that the Free Press Editorial Board sees eye to eye with Michigan Attorney General Bill Schuette. But the AG’s announcement that he is prepared to defend the constitutional protection of Michigan pensioners earns him our praise.

Whether — or, realistically, how much — Detroit pensioners will be asked to sacrifice has been the unanswered question looming over Detroit’s restructuring. Unfunded pension system and retiree health care liabilities comprise the largest chunk of Detroit’s $18 billion in debt and obligations: To meet projected costs over the next 30 years, the city would have to pay $3.5 billion to its pension funds and put $5.7 billion toward retiree health care. Detroit emergency manager Kevyn Orr says the city doesn’t have the money.

But the Michigan Constitution contains a strongly worded section barring the diminishment or impairment of pensions that are contractually agreed upon. Whether a bankruptcy court can, or will, trump that protection is far from certain.

In other states, pensioners have taken substantial cuts during bankruptcy. In Rhode Island, where state law prioritizes bonded debt over pension obligations, retirees took cuts of up to 55%. In Stockton, Calif., retirees have lost health care; the city paid about $5.1 million to settle disputes associated with that loss.

Language in Orr’s proposal to creditors is explicit: “Because the amounts realized on the (pension) underfunding claims will be substantially less than the underfunding amount, there must be significant cuts in accrued, vested pension amounts for both active and currently retired persons.”

And while Orr has been coy about the size of the cuts pensioners might take, he has also made it clear that he believes a bankruptcy court’s ability to alter contracts would prevail.

That will be one of the core dramas playing out over the next few months. Orr’s interpretation is aggressive, to say the least. And even if his argument is upheld by the court, there’s the question of whether another interest, such as state government, might be called on to meet Detroit’s defaulted pension obligations.

It seems almost certain that retiree health care will be lost. But it is crucial that pensions be protected, and that’s why it’s appropriate that Schuette, in a break from fellow Republican Gov. Rick Snyder, has stepped up to defend them.

That’s the law in this state. And Schuette is following the rule of law by defending the state constitution. In this instance, Schuette, the state’s top legal authority, is “on duty,” as he says, in a way with which this newspaper strongly agrees.